The recent collapse of the Silicon Valley Bank, the 16th largest bank in the US, has left behind a trail of confusion in India Inc. too, especially among the startups. With the memories of the 2008 Lehman Brothers collapse still fresh and the global economic downturn it triggered, no wonder the Indian government too has moved in to gauge the impact and look at ways of mitigating the risks for Indian companies.
SVB, the 16th largest bank in the United States, was closed on March 10 by the California Department of Financial Protection and Innovation which later appointed the Federal Deposit Insurance Corporation (FDIC) as its receiver. The bank had 8,528 employees as of December 2022. In order to protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB), and transferred all deposits—both insured and uninsured—of the failed SVB to the newly created ‘bridge bank’, which will be operated by the US agency. Starting March 13, startups were allowed to withdraw their money that was stuck in their SVB accounts, as US government allowed businesses to have full access to their deposits.
Impact on Indian Startups
The collapse of Silicon Valley Bank (SVB) has put the focus on American technology startup accelerator Y Combinator-backed Indian startups and what lies ahead for them in the near future. With the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corporation assuring that no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer, the situation remains grim for startups that had exposure to Silicon Valley Bank.
Siddarth Pai, the founding partner at Bengaluru-based 3one4 Capital, estimates the exposure of Indian startups to SVB to be in the range of $2.5–3 billion. Y Combinator backs some 250 Indian startups, 90–95 percent of which are based outside India. SVB has reportedly invested in around 21 Indian startups, as per Tracxn data, but the exact investment amount is unclear. Other startups that raised funds from SVB include Bluestone, Carwale, and Loyalty Rewardz.
As per Tracxn data, Paytm, One97 Communications and Paytm Mall had received SVB fundings of $4637 mn, $2787 mn and $808 mn respectively, though Paytm founder Vijay Shekhar Sharma, has publicly claimed that Silicon Valley Bank (SVB) has completely exited its investment in the company and received significant returns, despite investing only $1.7 million. Sharma has confirmed that SVB is no longer a shareholder in Paytm.
Other Indian startups having received SVB funding include Naaptol ($133mn), Bluestone ($111 mn) TutorVista ($102 mn), iYogi ($85 mn), Genesis Colours ($74 mn), Bharat Financial Inclusion ($144 mn), Games2Win ($13 mn), Asklaila ($12 mn) among others. There are some large, non-Y Combinator-linked SaaS companies on the west coast with operations in the US and India that have had significant exposure to SVB.
The situation is particularly difficult for startups backed by the Silicon Valley accelerator Y Combinator (YC), with at least 40 YC-backed Indian startups having between $250,000 and $1 million each in deposits with SVB, and over 20 of them having deposits of over $1 million each.
Larger YC-backed companies in India, such as Razorpay, Meesho, and Zepto, have no exposure to SVB. However, early-stage and mid-stage startups are seeing the impact of the bank’s collapse. Some of the larger YC companies from India moved funds over the past few weeks, sensing a potential disruption.
Indian Government Steps In
The Union Minister Rajeev Chandrasekhar met with 450+ startups and reassured them that the government is focused on helping startups navigate the crisis sparked by the collapse of Silicon Valley Bank. During the meeting, it was proposed that the government work with banks and stakeholders to encourage the development of innovative credit products.
Startups like Zoth.Io, Hatica.Io and VCs and financial service providers like Blume VC and Mirae Asset were part of the meet. “Indian banking system is most stable & robust and you must explore it as part of your organisational framework. While startups have a natural incentive to use banks like SVB, we must figure out a way to use the Indian banking system without changing your business model.” Chandrasekhar said.
Some of the concerns that were shared by the attendees included transfer of their US Dollar deposits to India and to US-based branches of Indian banks, among other issues. The Minister added that for those startups whose deposits were going to be made whole, but have no access to it currently, “We will explore the option of whether any credit lines can be made available in US dollar or Indian rupees. We will also try to see if more credit products like in the US, can be made available to you and make it easier for them to move from SVB to any other Indian Bank in the US.”
He assured the startups that they could approach CEO, MeiTY Startup Hub for any problems or issues that they were facing and the Government would do its best to help out. “We will share list of suggestions with Finance Minister Smt Nirmala Sitharaman and explore how best your concerns can be addressed. We will also explore how smoothly we can facilitate the transfer of your US dollar deposits to Indian banks, IFSC centred foreign banks or any other Indian bank which has presence in the United States,” he added.
Not only The recent collapse of US-based Silicon Valley Bank (SVB) has impacted the owners of the startups, but it has also left several employees, including ones working in India offices, in the lurch. Hundreds of India-based employees of the failed bank have taken to social networking platforms like LinkedIn, putting out posts as they actively seek new roles, while others have submitted applications to recruiting firms.
“The experience was surreal and disorienting as it was a difficult and stressful time for all of us. We had very little time to come to terms with what was happening,” mentioned one employee on social medi. As per estimates, SVB has more than 800 employees currently working in hybrid mode in Bengaluru. While it is yet to be ascertained which departments and teams have been affected, the majority of the job seekers are from the product and tech areas.
Several HR agencies have already received about 150-200 applications from SVB employees seeking new roles in the last few days. Most of the applications have come in from tech and product departments, including software engineers, developers, architects, system analysts, CRM/API consultants, product development, and so on. These are from both junior- and senior-level employees.
Meanwhile, Premil Dennison, Managing Director and Country Head, SVB India applauded the efforts of the team operating in India on LinkedIn and emphasized the importance of reaching out. “This is not just a banking crisis; it’s immensely personal to all of us. Take care of yourselves and your families first. However, the chips may fall, do know that your knowledge and skill set is unique, deep and highly sought after. You have my unwavering support during this tough time. I’m here to talk, chat or email if you just want someone to listen,” he wrote.